A Street Fight Brews in Europe Over Hyperlocal Info

Yelp’s leadership has made one thing abundantly clear over the past few quarters: International expansion is a major priority for the reviews site. In late October, just a little more than three months after opening its first international sales office in London, the reviews company dished out $50 million to acquire its biggest European rival, Qype, in a move that effectively doubled Yelp’s presence on the continent.

So as the American ecosystem experiences a shakeout, Europe may be headed for a street fight of its own over hyperlocal content as legacy yellow pages providers, domestic start-ups, and American powerhouses like Yelp vie for the still wide-open market. Paris-based start-up 1001 Menus is one of those companies. The two-year-old firm is positioning itself as the SinglePlatform of France, offering French restaurants a chance to publish menus online and distribute that content in real time to a number of the major French local listings publishers.

Street Fight caught up with 1001 Menus CEO Xavier Zeitoun to discuss the hyperlocal landscape on the Continent, as well as some of the roadblocks for American companies looking to expand.

You started 1001 Menus after a year of living in the United States. Tell me a little about the difference between the hyperlocal ecosystems in France and the U.S., respectively.
The first thing I noticed when I returned to France in 2010 was that there was no French equivalent to MenuPages, and it’s still the case. It was the same for the entire stack of services built [for restaurants] that exist in the U.S. That’s changing a little now. The second part was that while the ecosystem was less developed, the restaurant owners in France were generally just as Internet savvy as they are in the U.S. I had this idea when I came back to France that restaurant owners in the U.S. had a five- to 10-year lead in terms of understanding the basics of communicating online, but it’s really the same.

Yelp has dialed up its international growth recently. What’s Yelp’s position in the French market today, and how do you see that evolving over the next eight to 12 months?
It’s always difficult when you try to replicate a business model for the same product in different countries, but it’s exceptionally hard when you’re dealing with the specificity of local marketing. When you talk to local business owners, they do things differently in different places. And, more importantly, they don’t have the same budgets for online advertising. That’s the main difficulty for sites like Yelp. In New York, it costs somewhere around $500 a month for a restaurant to be featured on the results. In France, I can almost certainly assure you that they will not find a single restaurant willing to pay that rate.

But [Yelp] takes a pretty patient approach. For the first year, they only focus on growing the traffic on the site. Then they wait two to four years before they start to monetize their audience. That’s a big advantage for them; they have enough time to wait and see which model will come through.

Scaling can be difficult for hyperlocal businesses even when they’re just trying to grow domestically. What are some of the issues involved with expanding a business throughout Europe?
The big issue here is that even as a start-up, you can’t just define your market as France. You have to think of building internationally very early on. There’s such local specificity by country, particularly in selling to small businesses, that you can’t target and launch a product in all European countries at the same [time] without adapting each model and each strategy to the nuances of each market. So talking about the European market is really incorrect.

For us, there are two motivations at play here. From a strategic standpoint, it’s better for us to expand into a foreign country because we put our footprint on a different country, making us more attractive both for investors and for our network of partners. But we also expect to have competition within France, so at the same time we have to make sure that we have a dominant presence within all French cities or risk losing market share domestically.

The growth of the hyperlocal ecosystem in the U.S. has come on the back of a robust community of start-ups. What’s the climate for new enterprise in France, and how has regulation from the new government affected the community?
When the new government came into power, they wanted to change the law about the exit tax, essentially how much you pay to the government when you sell a company. What they didn’t realize when they voted on this new law was that it would impact all of the entrepreneurs because they all have shares in those companies. It would have effectively doubled the tax to a little more than 60%.

All of the entrepreneurs pressed the issue, and so the government changed the law to keep the 30% effective tax for entrepreneurs. But they didn’t change the law for the investors. So it means that if you’re a French investor, and you wanted to invest in a start-up, you would be taxed 60% when you sell your shares. The government told the press that they made something great for the entrepreneurs, but the investors are an essential part of the ecosystem. And with capital moving out of France, it’s getting harder and harder for entrepreneurs to find funding because we’ve lost the investors.